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    aas's Avatar
    aas Posts: 13, Reputation: 1
    New Member

    Apr 15, 2009, 09:04 AM
    EPS trends versus cash-flow trends
    I got an assignment about equity valuation. The case is basically about EPS calculation. In the book, it was stated that cash-flow per share is an alternative to analyze equity value. But, in what circumstance you prefer to use cash-flow trends rather than EPS trend? What are the advantages and disadvantages of looking at cash-flow trends instead of EPS trends? Which methods you prefer best? Why?

    Thank you... :D
    codyman144's Avatar
    codyman144 Posts: 544, Reputation: 31
    Senior Member

    Apr 16, 2009, 06:56 AM

    I can't do the work for you. If you want to post your ideas on this subject I will discuss it. But I'm not doing your assignment for you.
    aas's Avatar
    aas Posts: 13, Reputation: 1
    New Member

    Apr 16, 2009, 07:36 AM

    Well actually my question in this forum is not my assignment's questions.. in the assignment, which I've already submitted last week, I was only asked to calculate the primary EPS, diluted EPS and the cash flow per share.. but I'm just wondering what is the difference in using both methods?

    In simple EPS calculation we divided NET INCOME with WASO and in CF/Share, we divided NET INCOME + Depreciation (or NET INCOME + Dep (1-tax) or EBITDA) with the weighted average of shares outstanding.. so it basically similar, based on Net income, the only difference in CF it was also added by depreciation, etc..

    Well, I don't have accounting background, so I'm just wondering whether you could give me some insights about the difference of using both methods? Whether each methods have their own advantages/disadvantages, so we have to considered the circumstance first before deciding on the methods to use? If that so, in what kind of circumstance we decide to use one method over the other?

    It's a little bit hard for me to express my confusion in english.. correct me if I'm wrong, but I notice that in CF/share, the non-cash (dep&ammort) was added back to the net income.. what is the effect of adding it back? I know it was part of the operating CF calculation to calculate how much cash owned by the company.. but still, it basically generated from earnings..

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